Michigan Personal Property Tax Reform
and Local Revenue Stabilization Package
James McBryde, Vice President and Senior Advisor
Michigan Economic Development Corporation
1
What is the Proposal?
APPROVAL OR DISAPPROVAL OF AMENDATORY ACT TO REDUCE STATE USE TAX AND REPLACE WITH A
LOCAL COMMUNITY STABILIZATION SHARE TO MODERNIZE THE TAX SYSTEM TO HELP SMALL
BUSINESSES GROW AND CREATE JOBS
The amendatory act adopted by the Legislature would:
1. Reduce the state use tax and replace with a local community stabilization share of the tax for the
purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan.
2. Require Local Community Stabilization Authority to provide revenue to local governments dedicated
for local purposes, including police safety, fire protection, and ambulance emergency services.
3. Increase portion of state use tax dedicated for aid to local school districts.
4. Prohibit Authority from increasing taxes.
5. Prohibit total use tax rate from exceeding existing constitutional 6% limitation.
Should this law be approved?
YES [ ]
NO [ ]
2
What is the Proposal?
• In 2014, taxpayers’ property valued at less than $80,000 is eligible for exemption.
• Eligible Manufacturing Personal Property phased off tax rolls over 10 years:
Year
3
Exemption
2016
All personal property first placed in service before 2006 and after 2012
2017
Property first placed in service in 2006
2018
Property first placed in service in 2007
2019
Property first placed in service in 2008
2020
Property first placed in service in 2009
2021
Property first placed in service in 2010
2022
Property first placed in service in 2011
2023
All eligible manufacturing property
Why are we doing this?
Jobs
4
Before: An obsolete, burdensome tax
• Harmed manufacturers
• Overwhelming compliance costs for small businesses
• Businesses hesitant to purchase new equipment
• Little to no CIT tax relief for large manufacturers
5
Before: Disincentivized business investment
• Discouraged businesses from expanding or relocating
• Michigan’s competitors already eliminated the tax
• Complicated and confusing for businesses – account
for property and revalue based on formulas annually
6
Drop in Industrial PPT Reliance
Industrial PP SEV as a percentage of total SEV
5
1999 – 5.1
4
2011 – 3.1
3
2
1
0
7
39%
Local Reimbursement
8
Reimbursement After FY 2015
Police, Fire
Ambulance and Jails
Use Tax
100%
K-12 / ISD
Operating & Debt Loss
Use Tax
100%
Lost TIF Capture
Use Tax
100%
Use Tax
Est.
100%
Everything Else
9
Reimbursement After FY 2015
New GF
Revenue
Baseline GF
State ESA
General
Fund
100%
Reimbursement
State
Use Tax
State
Use Tax
Expired
Credits
10
Local
Use Tax
Michigan Use Tax
11
Michigan Use Tax
• Use tax enacted in 1937
• Combined state and local
use tax cannot exceed 6%
under the Constitution
• Reimbursement only uses
General Fund portion
12
• Use tax is sales tax on:
• remote purchases
• Telecom
• lodging
• 4¢ goes to the General Fund;
2¢ goes to the School Aid Fund
Michigan Use Tax
• Proposal would give local governments
title to a share of the state’s use tax
revenue.
• It would not increase use tax revenue.
13
Projected Growth of Exempt PP Revenue
vs. Use Tax Revenue 2023-2033
$600 M
$400 M
$200 M
2023
14
Projected growth in
Use Tax revenue:
$582 M
2033
Projected growth in revenue
from exempt PP, assuming no exemption:
$30.3 M
Essential Services Assessment (ESA)
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State ESA
• Small assessment that provides
continued funding for local government
essential services, like police and fire
• Only assessed to businesses claiming
the manufacturing exemptions
16
State ESA
Better for local governments because:
Better for manufacturers because:
• No need to levy, collect or administer
• >80% tax reduction, on average
• No litigation risk – locals get
guaranteed revenue through the
use tax
• One return, submitted to the state
• No need to continue granting PPT
abatements and forgo revenue
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• Simple statewide calculation based on
acquisition cost
• Three-tier rate structure provides simple
depreciation and is fixed in statute
What’s Next?
The August 5, 2014 statewide vote to dedicate a portion
of the existing state use tax as a local tax levied by a new
statewide authority.
If voters reject the proposal, the small parcel exemption
will end after 2014 and the Eligible Manufacturing
Personal Property exemptions will not take effect.
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Questions?
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James McBryde
MEDC
McBrydeJ@michigan.org
(517) 335-1847
Howard Ryan
Michigan Dept. of Treasury
RyanH1@michigan.gov
(517) 335-1225
Lois Malhado
MEDC
MalhadoL@michigan.org
(517) 335-0526
Howard Heideman
Michigan Dept. of Treasury
HeidemanH@michigan.gov
(517) 373-9002
Ballot Proposal Language
APPROVAL OR DISAPPROVAL OF AMENDATORY ACT TO REDUCE STATE USE TAX AND REPLACE WITH A
LOCAL COMMUNITY STABILIZATION SHARE TO MODERNIZE THE TAX SYSTEM TO HELP SMALL
BUSINESSES GROW AND CREATE JOBS
The amendatory act adopted by the Legislature would:
1. Reduce the state use tax and replace with a local community stabilization share of the tax for the
purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan.
2. Require Local Community Stabilization Authority to provide revenue to local governments dedicated
for local purposes, including police safety, fire protection, and ambulance emergency services.
3. Increase portion of state use tax dedicated for aid to local school districts.
4. Prohibit Authority from increasing taxes.
5. Prohibit total use tax rate from exceeding existing constitutional 6% limitation.
Should this law be approved?
YES [ ]
NO [ ]
20